ATP turns higher; ResCap, Chesapeake move back down; Verso, Rotech, coal off in weak market

By Paul Deckelman

New York, May 16 - ATP Oil & Gas Corp.'s battered bonds were seen having moved up a couple of points Wednesday from their recent lows after four days of getting hammered down. The offshore energy company's issue was the busiest junk credit of the day.

However, two other actively traded names, bankrupt mortgage lender Residential Capital LLC and embattled natural gas operator Chesapeake Energy Corp., were seen once again pushed lower in active dealings. They had turned higher on Tuesday after several straight days on the downside, all in heavy trading.

Beside its bonds, Chesapeake's brand-new term loan was also seen trading off the levels at which that deal had traded on Tuesday after it priced.

Traders said that the leveraged debt markets generally were weaker in line with continued downside on Wall Street, and that pushed down some particularly distressed credits.

Among them was Verso Paper Holdings LLC. Investors were still reeling from the poor quarterly results the company reported Monday.

Rotech Healthcare Inc.'s bonds were quoted multiple points lower, continuing the slide that began on Monday when it announced a delay in filing its 10-Q report with the Securities and Exchange Commission as the result of an overbilling error it had discovered.

Coal names continued to take it on the chin Wednesday, particularly James River Coal Co. and Patriot Coal Corp.

ATP breaks losing streak

A trader said that he "saw a lot today" in ATPG Oil & Gas' 11 7/8% second-lien senior secured notes due 2015, calling the Houston-based offshore energy company's paper "up a little bit," seeing it in a 62-63 context. He called that up a half point.

There was "a lot of volume" in the credit, with over $51 million of those bonds having changed hands on a round-lot basis, making it tops among the junk bond most-actives.

"They were No. 1 on Trace," he said. "Plenty of bonds traded, an awful lot of paper."

It was the first time that ATP's bonds have been on the upside in five sessions. Before that they were falling last Thursday and Friday and again on Monday and Tuesday on investor response to disappointing quarterly results and financial projections released after the market closed last Wednesday, followed by a conference call that did not do much to restore investor confidence.

At that time, the bonds were still trading in the mid-70s - but they got hammered down successively, bottoming at lows around 60 on Tuesday, in response to the numbers.

In the quarter ended March 31, ATP recorded a net loss attributable to common shareholders of $145.1 million, or $2.83 per basic and diluted share - wider than the $119.5 million, or $2.34 per basic and diluted share, of red ink seen a year ago in the 2011 first quarter.

Revenue of $146.6 million fell well short - by a yawning $32 million - of Wall Street expectations.

Chesapeake back on the slide

However, in contrast to ATP, sector peer Chesapeake Energy's bonds were once more seen heading south on Wednesday. This came after the bonds seemed to have broken their losing streak on Tuesday, when the bonds finally traded up and in heavy volume after having gotten beaten down over the prior several sessions.

A trader said that the Oklahoma City-based No. 2 U.S. natural gas company's bonds were "probably down a couple of points," with the 6 5/8% notes due 2020 finishing down 2¾ points on the day at 91 on volume of over $29 million, the heaviest in its capital structure.

Chesapeake's 6.775% notes due 2019 closed at 91¾ bid, off 2¼ points on the day, with over $19 million having traded, while its 9½% notes due 2015 were down 2 points at 101¾ on $14 million of turnover.

In the bank debt market, Chesapeake's $4 billion unsecured term loan (BB-) due Dec. 2, 2017 was active and saw a considerable drop in trading levels from where it broke on Tuesday as the secondary was weaker in general, traders said.

One trader also theorized that although the paper is juicy in terms of pricing, there may be some concerns out there by investors that the company may be facing more issues than originally thought.

The loan was being quoted by one source at 96½ bid, 97 offered, down from 98½ bid, 99 offered, and by a second source at 96¾ bid, 97¼ offered, down from 98¼ bid, 98½ offered.

Pricing on the loan, which was sold at an original issue discount of 97, is Libor plus 700 bps through Dec. 31 with a 1.5% Libor floor. The spread will increase to Libor plus 800 bps if, prior to Jan. 1, 2013, the company uses proceeds from certain asset sales or financing transaction to repay revolver debt and to Libor plus 1,000 bps if any amounts remain outstanding after Jan. 1, 2013.

Starting on May 11, 2013, lenders have the option to exchange their loans for 11½% fixed-rate notes.

Chesapeake Energy has said that it expects to repay the new term loan with proceeds from contemplated asset sales that are expected to total $9 billion to $11.5 billion this year.

Strong interest for its Permian Basin asset sales process and its Mississippi Lime joint venture process has been received, and the target is to close on the transactions in the third quarter, the company added.

PDVSA still percolating

Also in the energy arena, a trader said that "Venezuela is still popular" - meaning the bonds of that country's state-run oil monopoly, Petroleos de Venezuela SA.

He saw PDVSA's bonds down by 1 to 2 points on the session, with the Caracas-based borrower's 8½% notes due 2017 finishing at 81 bid, 82 offered, which he called "down a couple of points" on heavy volume of more than $40 million.

He saw its 9% notes due 2021 closing at 72 bid, 72½ offered, which he estimated as 1¾ points lower on the session. That issue also saw more than $40 million having changed hands.

PDVSA's 5¼% notes due 2017 closed at 69 bid, 69½ offered, which seemed to be unchanged, he said, "but with plenty of volume," topping the $20 million mark.

Coal gets clobbered

A junk bond trader said that "the whole coal space was on the downside" on Wednesday.

He saw St. Louis-based operator Patriot Coal's 8¼% notes due 2018 fall to 65 bid, down almost 2 points.

In the convertibles market, James River Coal's 4½% convertibles due 2015 took another leg lower on Wednesday, ending the session at 39¼ bid, 39¾ offered, which was down 3 or 4 points compared to Tuesday's down move to 42ish from 44.

"It's definitely coming in weaker today," a trader said of the market in general.

ResCap in retreat

Away from the energy world, a trader saw Residential Capital's 9 5/8% notes due 2015 finishing in a 931/2-to-94 context, calling that down a deuce from where the bonds were on Tuesday.

"We started the day at 95¼ but then traded down," ending up at 94, he said.

He said that about $11 million or $12 million of the bonds traded, which he called "pretty active, but not as active as the last two days." More than $27 million moved on Monday, and almost double that, north of $50 million, traded on Tuesday.

The troubled Minneapolis-based mortgage lender's senior bonds fell about 4 points on Monday down to about the 93 bid level in heavy trading on the news of ResCap's Chapter 11 filing with the U.S. Bankruptcy Court in New York, even though that came as a surprise to exactly no one. A bankruptcy filing had long been expected. Then on Tuesday, the bonds bounced back up by a couple of points, with traders saying they believed that Monday's sell-off was overdone.

Caesars seen lower

A trader saw Caesars Entertainment Corp.'s 10% notes due 2018 down about a point on the day, closing at 68½ bid, 69½ offered.

About $15 million of the Las Vegas-based casino giant's paper traded.

Verso still languishing

A trader quoted Verso Paper's bonds continuing to languish in the lower 40s, having not recovered from the plunge they took earlier in the week.

He said that the Memphis-based paper company's 8¾% notes due 2019 were being quoted at bid levels within a wide 44 to 47 context, though "I didn't see any trades" during Wednesday's session.

He said the company's 11 3/8% notes due 2016 were quoted between 57 and 60. There was "no volume, but that's down a couple of points" from where they were earlier in the week, though unchanged from Tuesday's levels.

Both Verso issues had been knocked down by several points in fairly brisk trading on Monday and again on Tuesday, traders said, after the company released poor first-quarter numbers.

Verso's first-quarter net loss of $73.9 million, or $1.40 per diluted share, widened from its year-earlier red ink of $44.6 million, or 84 cents per share. Excluding the various special items, the company slid to an operating loss of $12.3 million in the latest quarter, versus operating income of $14.1 million a year ago. Verso's net sales for the first quarter decreased to $375.3 million - a plunge of $41.3 million, or 9.9% from a year ago.

So toxic were those results that they overshadowed the more positive news the company reported on Monday, that it had undertaken a series of refinancing transactions during the quarter that resulted in the maturities of $840 million of debt due 2012 and 2016 being pushed out beyond that point, leaving just 7% of its total debt up for renewal before 2016.

Equity investors meanwhile remained in a funk despite the good news on the debt front, focusing on the numbers. In Wednesday's dealings, Verso's New York Stock Exchange-traded shares swooned by 23 cents, or 15.86%, to end at $1.22, although volume of 158,000 shares was somewhat less than the usual turnover.

Rotech retreats

A trader saw more bloodshed in Rotech Healthcare's 10½% notes due 2018, quoting the bonds down another 5 or 6 points on the session at 561/2, although on relatively light dealings.

Its secured 10¾% notes due 2015 dropped a point to 971/2.

The Orlando, Fla.-based company's bonds have nosedived since the company's revelation on Monday that it discovered serious errors in its billing procedures, forcing it to delay the filing of its 10-Q report with the SEC and raising the possibility that results for the last several years may have to be restated.

Rebecca Melvin and Sara Rosenberg contributed to this report

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